Consumer confidence falling, drop in export earnings forecast
Eric Beauchesne
Sun
Lagging business investment, falling consumer confidence and a worsening trade performance are darkening the outlook for Canada‘s economy, separate reports warned Thursday.
This is troubling “both for Canada as a whole and for many provinces,” C.D. Howe Institute said in a report that showed companies here are investing much less in productivity-enhancing plants and equipment than any other major industrialized country, while marketing research firm TNS Canadian Facts said “waning consumer confidence is further evidence of softening domestic demand and bad news for Canadian business.”
Export Development Canada added to the gloom with a forecast that export earnings — which have been sustained by rising oil prices — will fall next year as oil sinks to just $84 US a barrel amid weakening U.S. and global economies.
“Since our spring global export forecast, there hasn’t been much good news for Canadian exporters,” said EDC chief economist Peter Hall, who said this year’s 4.2 per cent gain in export earnings was due to high energy prices, and that without that support export sales will fall one per cent in 2009.
And the drop in exports will be despite a retreat in the value of the Canadian dollar to the mid-90 cents US range, the EDC said. The currency ended trading at 98.68 cents US on Thursday, down 30 basis points from the previous day.
The reports came as North American stock markets were in full retreat, with Bay Streets’ benchmark S&P/TSX composite index plunging more than 300 points and Wall Street’s blue-chip Dow Jones industrial average fell by almost the same amount on news that U.S. home sales have plunged more than expected and that jobless claims have increased more than anticipated.
On the domestic front, TNS Canadian Facts said its consumer confidence index slipped to 96.5 this month from 97.8 in June, leaving it down a “significant” 11.5 per cent from its 109 peak last November.
“Recent declines reflect a deterioration of current conditions rather than just expectations for the future,” TNS vice-president Richard Jenkins said in releasing the results of the market research firm’s July survey.
Only 29 per cent of Canadians currently think this is a good time to make a major purchase, the mid-July survey found.
“Although confidence has not completely evaporated, we expect more and more consumers to retreat from making major purchases and scale back discretionary spending,” Jenkins added.
The C.D. Howe Institute, meanwhile, warned that Canada‘s long-term prosperity is also at risk.
Businesses in Canada are expected to continue to invest less per worker in plant and equipment than other industrial countries, especially its major competitor and trading partner, the U.S., the think-tank said.
Over the past decade, it said, business investment in capital in Canada has been consistently below the average of the other industrial nations and projections suggest that will continue through this year and next. Even in the face of economic weakness and credit market turmoil in the United States, Canada is not closing the gap with its southern neighbour, it added.
For every dollar businesses in industrial countries invest in new capital this year, Canada will invest only 96 cents, it said. Compared with its G7 counterparts, Canadian businesses will invest just 94 cents for every dollar that G7 member countries do, and compared with the U.S. just 89 cents.
“Improving Canadians’ prosperity depends critically on investment in new plant and equipment,” it said.
“By speeding the adoption of new technology, higher rates of capital investment make Canadian products more competitive, and raise living standards,” it said. “Countries with more capital per worker have higher incomes per worker.”
While the average Canadian worker can expect some $11,100 in new capital investment in 2008, rising to $11,400 in 2009, the average worker in the world’s 30 industrial countries will likely see the equivalent of $11,600 in Canadian dollars worth of such new investment, rising to $11,800 in 2009, it said.
The gap with the other G7 countries, which include the U.S., Britain, France, Germany, Italy and Japan, is even greater. The average G7 investment this year is projected at the equivalent of $11,800 rising to $11,900 in 2009. And the gap with the U.S., where investment is expected to amount to $12,500 this year and next, is greater still.
Provincially, the capital investment picture is mixed, with relatively high levels of capital investment in the resources rich provinces of Alberta, at $2.45 in new capital investment per worker this year for every $1 in such investment per worker in the U.S., Saskatchewan and Newfoundland and Labrador, at more than $1 each per worker more than in the U.S.
In Manitoba, new capital investment per worker is expected to be equal to 96 cents of the level in the U.S. and in British Columbia it is expected to be 76 cents.
However, in Ontario, Quebec and the Maritime provinces the level of new capital investment is no more than two-thirds of that in the U.S.
“Canadians need more state-of-the-art tools to preserve their competitive edge,” the C.D. Howe report said. “New machines and equipment, moreover, are likely to cut waste, reduce environmental stress and raise living standards as well as produce better goods and services.”
The report argues that Canada‘s failure to improve its competitive standing against other developed countries, despite a healthy economy and robust saving, underscores the need for tax and regulatory policies that would spur private investment.
© The Vancouver Sun 2008